The Blockchain East summit and trade show, Beyond Cryptocurrency: Exploring the Business of Blockchain, took place in NYC this fall. DataArt has delivered dozens of blockchain solutions over the past several years, most of them for early adopters of DLT technology – start-ups and mid-size businesses.
Most of our solutions involved digital wallets, payments, and cryptocurrency exchanges, but recently we’ve initiated projects that go beyond these areas. Blockchain East was an excellent opportunity to confirm our observations and explore the current state blockchain technologies and related business opportunities.
A New Model of Software Design and Delivery for Enterprises
New technologies bring new business opportunities, and consequently companies and start-ups are eager to adopt these technologies and realize new opportunities. Very often, such companies develop and establish their own standards, which can create incompatibility issues – hundreds of different interfaces, technologies and commercial products are flooding every industry. Most of the business value brought by DLT is related to minimizing inefficient flows, messaging, and getting rid of duplicate ledgers and sluggish reconciliation processes. Communities and users of DLT solutions must use same technology and share the same code, as well as use open standards and protocols. Due to these reasons, successful DLT solutions cannot be designed and tested in isolation or be privately owned and then adopted by an entire industry.
During Blockchain West, most of panels were driven by consortiums of enterprises, fintech and global technology companies that united to build MVPs and solutions based on open standards. The standards were not owned privately and worked for entire industries. Hyperledger and Enterprise Ethereum Alliance, together with DTCC, presented a joint solution design and development case in which DTCC is driving open standards over the Hyperledger Board and Banking Groups, contributing code to open source. DTCC’s Managing Director, Chief Technology Architect, Rob Palatnick, explained that in addition to Open Source and standards contribution, DTCC provides governance models as well as AML/KYC models required by regulators, and actively cooperates with governing body organizations. DTCC is actively educating supervisors and lawmakers on new standards and technology opportunities. As a result, they will deliver a new low-cost Master Ledger solution for Credit Default Swaps. It will be delivered to the entire industry and retire multiple ledgers today owned by different market participants, reduce the number of messages between DTCC and market participants, offer exception reconciliation improvements, and lower risks for all participants. The solution will be fully compliant with regulations, built-in security, privacy and immutability.
Two of the largest blockchain organizations in the world have joined forces to create enterprise-grade systems. Enterprise Ethereum Alliance (which currently has around 90 enterprise members, including Microsoft) and Hyperledger (which has dozens of enterprise members, including IBM) will be contributing to the Open Source technologies developed by the FinTech and alliance member community. The technologies will handle the most complex and challenging business functionality at the speed businesses demand. As a member of this alliance group, Microsoft presented new Proof of Authority solutions and were part of the “tokenization of everything” panel.
R3 is an enterprise blockchain software development firm and a consortium working directly with over 200 members and partners across multiple industries and backed by 45 global firms. It is developing business solutions on Corda, a blockchain platform. The solutions are already being used by major players in the financial services, healthcare, shipping and Insurance industries. Like DTCC, Corda not only develops and contributes code to Open Source, it pro-actively works with regulators to make Corda compatible with complex legal requirements in the highly regulated insurance industry. Corda is also emphasizing educational programs and building MVP solutions to proof new concepts to business and realize benefits.
All this give us a hope that true enterprise alliance and consortium-driven software design and development, based on the principles of open source and sharing, will boost a wave of true innovation in industry and allow enterprises to share the same common, scalable, cost efficient (cloud based) platform. It will allow organizations to re-use generic but sophisticated functionality and use company resources for value-added, custom features important to their businesses. In certain industries, insurance for example, a single shared platform may become the industry standard.
New types of Consensus for Enterprise Blockchain
Graham Mosley, Principal Program Manager at Azure Engineering – Blockchain, Microsoft, conducted an excellent session on Ethereum Proof of Authority on Azure for Enterprise Blockchain. Ethereum is a blockchain platform for smart contracts supported by Microsoft on the Azure Blockchain Workbench, along with Corda and Hyperledger fabric. Ethereum enterprise alliance works with enterprises and resources to provide their requirements to Ethereum, which is then responsible for governance and standardization of smart contracts across industries, as well as the incorporation of cases and functionality developed by Alliance members inhouse on platform. One of the major problems which DLT technologies solves is proof of work. Open, publicly distributed systems need a mechanism to confirm transactions. Etherium and traditional DLT technologies addressed this issue by requiring work from miners who are competing for transaction completion by executing computational processes on a computer (node). This mechanism requires significant computing resources. Some projections indicate that by 2020 Bitcoin mining, which requires proof of work, will impact global electricity consumption.
Microsoft, as the hosting environment for Ethereum, witnessed these inefficiencies and replaced the PoW concept with Proof of Authority (PoA). PoA does not require inefficient use of CPU and energy resources and at the same time is more secure than the alternative Proof of Stake model. In Proof of Authority, transactions and blocks in the chain are validated by approved accounts, which are known as validators. Validator nodes have the ability to put transactions in blocks automatically, but this also requires maintaining the Validator’s computer node uncompromised. This is possible and reliable only in a network in which all participants are approved/known and have a good reputation. The incentive for validators is to achieve a good reputation. This approach does not require a mining process, but at the same time it introduces the concept of centralization, which is acceptable for private distributed networks with known participants. Microsoft is supporting PoA functionality for Corda, Ethereum and Hyperledger.
Digital Identity was another exciting cross-industry case that was discussed on the panel Digital Identity and Its importance in Blockchain. Again, Microsoft and the Ethereum Alliance shared recent information that Microsoft is rolling out a decentralized digital identity solution that will protect the digital identity of consumers.
A Microsoft white paper explained that the platform will be supporting two major services:
- A cloud-based identity hub on Azure, an encrypted personal data store, that can only be accessed with permissions
- A “digital wallet” in which users can grant or revoke permissions based on their preferences
Microsoft promises to make an open source version of decentralized identity available on Blockchain and predicts that it will result in unified identity, which will be available on all platforms and across all applications. Today, Microsoft already integrated Active Directory (AD) services with a digital identity platform. This is a rapid development in terms of the technology and an excellent business case beyond cryptocurrency.
It is clear that in 2019 and 2020 we will see more and more cases not directly related to cryptocurrencies. Use cases that lend themselves well to blockchain-driven innovation include contract placements, claims assessments, trigger-based invoicing, technical accounting, and settlements. We will see more practical tokenization in finance cases and in managing digital assets of all kinds, primally because of security and immutability.
We extend our gratitude to the event organizers and sponsors. I hope that future events will bring more real-world business cases and we will see more successful enterprise cases after these investments in DLT technology.